Updated: More than any utility on the planet, Germany’s Yello Strom has embraced the intertwining of energy and home broadband connections. The company manages its smart meter service directly via its customers’ broadband connection; it’s the first European utility to offer its customers access to Google’s energy management tool PowerMeter; and it tells us this week that it has developed a prototype application that will enable its smart meters to tweet its customers’ energy consumption.

Compare that type of innovation to what your average utility is doing — just keeping the lights on — and it’s like night and day. “There’s close to a revolution happening,” when it comes to bringing the Internet and energy consumption together, says Martin Vesper, Yello Strom’s executive director. Think about it: The emergence of broadband connections in our homes has changed the way people consume media, communicate with each other, buy goods and work. And the hope, which Yello Strom is betting on and which could do wonders for fighting climate change, is that broadband will also fundamentally change both our energy consumption habits and what it means to be a utility.

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To be sure, Yello Strom, a subsidiary of Germany’s third-largest energy company, Energie Baden-Württemberg, has competition and innovation baked into its business model because the market it sells into demands it. Germany has a deregulated energy industry, unlike in the U.S., and Germans can switch to competing utilities which are eager to attract customers with new and interesting products and services. While we’re not arguing for U.S. energy deregulation — various U.S. states have already failed miserably at that — it does create a more friendly market for leveraging consumer trends, like the emergence of home broadband connections. It also leads to companies taking bigger risks and being more innovative.

Yello Strom is pretty much the only utility I’ve heard of that developed and sells its own smart meters. Looking at the smart meters that were already available on the market, Vesper says his team found only tools that focused on helping energy efficiency from a utility perspective. Not seeing anything they liked, or anything that would get consumers excited, they developed their own — the Sparzähler meter (or “savings meter”) — which looks like it would be at home in the window of an Apple store, is built off of Microsoft Windows CE (s MSFT), and has both a small web server and client inside.

That type of computing power puts it closer to a broadband-connected gadget, instead of some of the barely “smart” smart meters on the market today. It also means the device carries a price tag closer to that of a computer. Vesper says depending on a customer’s package of services and functions, consumers can rent the device from €3.99 to €8.00 ($5.60 to $11.24) per month or buy the device through deals where the Sparzähler is already included in the purchase price of the house. The company wouldn’t disclose the full cost of buying it. (updated: sorry about that guys, misunderstanding on the fees of this). (about $565 to $1,132). Wait, you mean people have to pay for it!? Yep, unlike in the U.S. where utilities are rolling out smart meters for free (or a relatively small monthly rate hike), Yello Strom’s business model depends on engaged customers buying its products.

There’s still the big question of whether or not the business model will work. Yello Strom started selling the Sparzähler in December 2008 (seven months ago) and while Vesper wouldn’t tell us how many the company’s sold so far, he said it’s selling around 100 to 200 meters per day. That might not be a lot compared with the amount of meters that a company like PG&E (s PCG) can roll out — PG&E’s Andy Tang said the utility is currently installing meters at a very rapid pace to hit its planned 10 million by 2012– but by selling the device to already engaged customers, the Yello Strom meter could end up having a bigger effect on actually changing customers’ energy consumption. “Those with the biggest interest in managing energy will buy it,” explains Vesper.

Yello Strom is also one of the only utilities that I’ve heard of that is basing its smart meter service around the consumer broadband connection. Many utilities are building out their own networks with various types of wireless protocols, or renting network space on a telecom company’s network, in order to bring back the smart meter data to its backoffice. But Yello Strom just rides the home Internet. That can make the data available faster to the consumer — within 10 minutes, says Vesper — as opposed to many utilities that aren’t planning to collect the data for processing faster than once a day. As researchers at Stanford’s Precourt Energy Efficiency Center said this week at their conference, it’s looking like the more frequent the energy data is available to consumers, the more effective it will be at changing their behavior.

Using the home broadband connection also has other attractions. It’s much cheaper for a utility than building a network. It also easily enables Yello Strom to add applications and services to the smart meter, like the Twitter application that Vesper told us is under development. (Basically the smart meter has a Twitter account and automatically updates its energy consumption.) We can’t picture too many people being engrossed in the tweets of their smart meter (or their house), but the point is whatever web-style applications consumers want, Yello Strom is willing to provide. If consumers want to view energy consumption in Microsoft Hohm when it’s available, we’ll offer that too, says Vesper.

Ultimately, broadband can also enable Yello Strom to morph into a new type of utility — one that provides an array of services and products, not just energy. To meet emerging regulations and fight climate change, utilities have to, in effect, start selling less of their core product: electricity. That means as that source of revenue goes down, particularly in a deregulated market like Germany where they are fighting for market survival, utilities have to find something else to sell that consumers will actually buy. The situation is not unlike phone companies that found their core product (voice) diminishing and were forced to find new services to sell. While it’ll take trial and error to discover exactly what the best products and services are for a company like Yello Strom (probably not a Twitter meter), you can bet the energy industry and its customers will be watching closely.

Thanks for another informative post! While the idea of using the homeowner’s broadband for smart meter communication is unusual, there are some examples of utilities in the US piggy backing on a home’s existing internet connection for things like demand response, e.g. TXU’s iThermostat.